Congress earmarks $1.9 billion to remove Huawei and ZTE gear from American networks

The US lawmakers have included in the coronavirus relief package up to $1.9 billion as reimbursement for American CSPs to remove Huawei and ZTE equipment from their networks.

European readers woke up this morning to the breaking news alerts on their smartphone screens that the US Congress has agreed to a $900 billion package of COVID-19 pandemic aid. More details of what are included in the package, especially details related to the telecoms industry, have just been disclosed.

Reuters learned from its sources that $1.9 billion has been set aside to finance American broadband operators to remove and replace equipment from Huawei and ZTE that is operating on the systems. Back in June the FCC formally designated Huawei and ZTE as national security threats. Such designations excluded the vendors from the shopping list of any operators wishing to access the Universal Service Fund (USF), worth $8.3 billion. Earlier this month the FCC shared more details on its mandate to operators which have equipment from these vendors to “rip and replace” with equipment from vendors deemed safe. The $1.9 billion is to compensate the cost to implement the rip-and-replace policy. The priority of the reimbursement is with small operators, especially those with two million subscribers or less, Reuters reported.

The decision would be welcome news to those more cash-constrained local and rural CSPs in the US that have been attracted to Huawei and ZTE. Back in 2018 when the FCC was asking for comments on its “Protecting Against National Security Threats to the Communications Supply Chain Through FCC Programs”, many of these operators expressed their disagreement. One of the most vocal opponents to the programme, which was seeking to ban Huawei and ZTE from networks financed by USF, was Rural Broadband Alliance (RBA) and its members. “The practical effect of enforcing such a rule is that RBA carriers would need to tear out roughly $1 billion worth of gear currently used to provide mobile voice and broadband in America’s rural areas well before the gear reaches its useful life span and can be depreciated,” the association said at that time.

How much it would cost operators to replace Huawei and ZTE, or how much compensation would be demanded by them, is yet to be seen. There is often plenty of ambiguity when calculating how expense it is to replace on-network equipment. One of the most famous recent disputes was on the projected cost of excluding Huawei from Europe’s 5G markets. While the GSMA estimated the additional cost could run as high as $62 billion, independent research firm Strand Consult estimated the net increase of cost would only be about $3.5 billion. The primary reason for the over than 90% discrepancy, Strand Consult argued, lies in the fact that operators would need to replace most of the equipment in question regardless the ban, as they would be coming to the end of their lifecycle.

The $1.9 billion rip-and-replace provision is part of an overall $7 billion investment plan to increase broadband access, which also includes different types of subsidies for under-served Americans. “The agreement invests $7 billion to increase access to broadband, including a new Emergency Broadband Benefit to help millions of students, families and unemployed workers afford the broadband they need during the pandemic,” House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer said in a joint statement.